Property powerhouse and NAMA valuation panel member, CB Richard Ellis (CBRE) has today published a quarterly review of the Dublin office property market in Q1, 2012. Here’s a summary.
“It’s shaky out there” might sum up the experience of Q1. Although the amount of accommodation rented in the quarter was disappointing by recent standards, CBRE expresses optimism that business will pick up in coming months. Sales of office buildings in the quarter were equally disappointing and the market is looking to what is expected to be €60m of transactions with two office blocks, both in south Dublin Docklands – One Warrington Place and Riverside II. One Warrington Place was expected to sell to Prudential for a shade over €27m, but that deal has gone south over price concerns, though CBRE say that a US buyer is now pursuing the property but it is understood on here that a yield of 7.5%-plus is being offered. Riverside II on the banks of the Liffey is understood to be under offer, with Pramerica said to be the buyer. Despite Budget 2012 being one of the most commercial property-friendly budgets in recent years – stamp duty reduced from 6% to 2%, capital gains incentives for property held for longer periods and the abandonment of Upward Only Rent Review changes – there seems to have been little bottom line activity in the past four months.
Vacancy levels remain elevated, with central Dublin coming down a squidgen during the quarter and vacancy elsewhere increasing. There’s no development of new office property at present though that is set to change in weeks with an announcement expected on here with respect to the Anglo HQ shell on North Wall Quay. However there may be refurbishment of existing stock which is not being captured by CBRE’s reporting.
CBRE says that prime rents in central Dublin are now at €296 psm (€27.50 psf) and “are stabilising”
It will be another three weeks before we get the two Irish commercial property indices for Q1, 2012 – Jones Lang LaSalle’s and SCSI/IPD’s, but the betting on here is that we’ll see a 2-4% decline, though given the absence of transactions and conflicting economic data – gloomier forecasts yet decent Exchequer data – it will be a challenge to assess values.
With NAMA controlling an estimated €6-7bn – by reference to current estimated values, NAMA paid €9.25bn by reference to November 2009 values – of commercial property and with Ulster Bank, Bank of Scotland (Ireland)/Certus and indeed AIB readying portfolios for sale, the market is agog to see where pricing will go, but with abundant supply, high vacancy rates, anaemic economic growth, credit restrictions and potential distortions by NAMA, pricing is unlikely to get much support in the short-term.
NAMA Wine Lake 
@ NWL The report makes no mention of public sector activity. As the Public Sector is renewing few if any leases there is likely to be some quite substantial buildings being returned to landlords.
A list of State held leases coming up to break clauses or the end of their term would certainly be interesting.
As the late great Frank Carson might say “It’s the way I tell ’em”. Not that I feel that the CBRE statistics are deliberately misleading – they are just a little lacking in transparency.
For instance, it is true that the current rental level for prime Dublin office space is €27.50. What is missing is the fact that this is the market level for a 10 year lease, with a 5 year break clause and a 12 months rent free period. Given the rent free period, the real rental level is €25 per sq. ft. per annum if the lease runs its full term.
In relation to investment sales; there are little or no comparables on which to make any assumptions. There has been a total of €25 million in sales during the last 6 months. And to say that the yields have tightened in the last 3 months is laughable. If anything they are moving out, and other than the Warrington place sale at 7.5% approximately, the asking prices around town are in the region of 8.5% and moving out towards 10% – and that’s before the tsunami of investment properties waiting in the wings is released.
As reported here, it should also be noted that the Warrington Place sale lost its original purchaser (the Pru) because prices were falling since it tendered and it tried to “chip” at the price level of 7.5%. It has been replaced by a new purchaser, but this time one that requires NAMA’s “staple” finance. The Riverside Two purchase is in excess of 8% and a pending sale in the Financial Services Area is in excess of 9%. All the aforementioned are over-rented, but have in excess of 10 years to run on the leases.
Also noticed the take up number has halved,year to year,these numbers would drive you to drink.
@JG, That is true John. Demand is down considerably from last year and most of the space now being taken up was rented last year. This year (so far) new space requirements are thin on the ground.
@WSTT we call it repricing due to material adverse chance during Due Dilligance,bit sporty of Pru.
Not the best strategy to publicly fumble a deal like that,not a lot goodwill created with NAMA either.A little unusual for institutions over here to haggle over price,after committing.
@JG, I’ll passover that comment John :-)
@ WSTT we would fire the broker or help for bringing that flaky buyer,and never work with them again !
Have not converted just yet,working on the paddy tan,some commentators remarked on McKillen’s tanned look!
At least bars and restaurants are open over here,have a nice Easter.
@JG, ….And to you too John. I enjoy the commercial wisdom and knowledgeable comments from you on here. Would that the NAMA amateurs had such insight and experience!
P.S. Don’t forget to wear the best suit in the Easter Parade on Fifth….
@WSTT in plastic paddy land,will skip the exuberance on fifth.Assume,you will be outside the GPO on Monday.
Thank you,for excellent insightful,witty,erudite comments,supported the Irish economy last night!